Markets May Have Hit Bottom in Ann Arbor

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Three bits of news came across my desk this week that may be pointing out that we may have it the bottom on the slumbering real estate market.

Sales of new single-family homes jumped 16.2 percent in April -- the largest increase in 14 years (Commerce Department)

This obviously reflects what's happening; we're in a buyers market. I hear the concern for buyers wondering if the prices of houses are going to fall further. They might -- and they might not. Nevertheless, buyers are taking advantage of several aspects of the market that make it favorable to purchase:

Lower prices

Low interest rates

Seller contribution to closing (tens of thousands of dollars)

Free upgrades, i.e., finished basements, decks, finer appointments, etc

Some buyers continue to wait for prices to move upward to signal the sign of the end of depreciating real estate; they'll also wait and miss out on the add-ons that are being thrown in at the base pricing. Instead of getting the $15,000 in closing and a $25,000 mortgage, they'll pay a little more for the house with a security that the prices have stopped falling. Their confidence in a recovering market outstrips their desire for free upgrades and cash at the table.

Keep in mind that as the market starts to turn, so will the offers of seller subsidies.

A second bit of news is:

More than half of the nation's housing markets are appreciating or have at least stabilized (HousingPredictor.com).

The trending out there is showing that where a year ago more than two-thirds of the major metropolitan housing markets were faltering, now the trend is upward -- meaning that while some may still be in a negative range, it's less negative than before, i.e., moving from -5 percent to -1 percent -- could we soon be in positive territory? The trend is upward. Buyers take notice and get in now while you can. Once prices begin their move upward, if coupled with a continuing growing economy, the interest rates may start moving upward alongside the upwardly mobile house prices, meaning more money per month.

The forward-looking index for the commercial real estate market rose in the first quarter to the highest level on record. The index has risen for eight consecutive quarters (National Association of Realtors)

Why is commercial real estate important to the residential buyer? Commercial development signals job growth. With job growth comes more pressure on the number of houses available to those taking the jobs.

Meanwhile, the Office of Federal Housing Enterprise Oversight released the first quarter numbers for 2007. Average home prices nationally were 4.3 percent higher in the first quarter of 2007 than in the same period in 2006.

Not taking away the pain many homeowners felt during this latest downturn and many of the foreclosures that hit with sub-prime market -- there was no bubble burst. In fact, it WAS a soft landing as many had predicted.

Here's another concern fence-sitting buyers should take into account -- interest rates. They're heading upward again. Buoyed by strong economic gains and growing corporate profits, the stock market keeps heading upward. Thus, the bonds move upward as well (I'm simplifying it, of course.) and the interest rates for real estate mortgages follow suit.

In the last few months average mortgage rates have crept up to 6.35 percent from 6.03 in March, costing home shoppers buying power as the cost of money increases along with the average cost of the price of a house.

Thus if the prices continue their upward climb, let's say at a mere 4 percent over the coming months, the average priced home (nationally) at $220,500, according to the National Association of Realtors, would then be priced $8,820 more at $229,320. Thus, the average house requires a higher mortgage. With just the interest rate jump since March, that money will now cost even more with a higher interest rate coupled with a higher price.

Waiting, while making sense in the short-term, could come back to bite a buyer in the long haul.

Written by M. Anthony Carr

Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: http://commonsenserealestate.blogspot.com/.

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